An Economy on the Mend?

In terms of economic news, the year ended well, with investors seeing signs everywhere that the economy has begun its recovery; for now. Look no further than the S&P 500 which ended 2009 strongly, up almost 60% from its lowpoint in March. The S&P 500 index is one of the leading indicators of the economy.

More good news came from jobless claims. Jobless claims hit a 17 month low, however, some cited the shortened holiday week which may have kept people from filing. I tend to disagree with that, having been on unemployment in the past. There was nothing that could have prevented me from getting my stipend, and I think most unemployed also feel that way.

The new seasonably adjusted numbers for the week of December 26th came in at 432,000, as opposed to the prevous initial report of 452,000. We are not creating new jobs yet, but that event doesn’t seem so far off now.

In December U.S. consumer confidence improved more than expected, hitting a three month high as pessimism over the job market declined and consumers' expectations reached a two-year high.

Consumer Confidence is the degree of optimism that investors feel about the overall state of the economy and their personal financial situation. When consumer confidence, investor sentiment, bull versus bear, and put to call ratios begin to reach lofty levels, investors point to the numbers as evidence the market is due for a sell off.

The Conference Board said its index of consumer attitudes rose to 52.9 in December from a revised 50.6 in November. Analysts had predicted 52.5 based on a Reuters poll that ranged from 46.0 to 57.0.

The expectations Index rose to 75.6, the highest since December 2007. The MBA (mortgage bankers association) purchase applications index did not come out this week due to the holidays, but will be released next Wednesday and will contain two weeks of data. This provides a very good gauge for housing demand and economic momentum.

Every time new construction begins, it translates to construction jobs and income that will be pumped back into the economy. Once the home is sold it starts the ripple effect. It provides income for the buyer and the realtor and brings a myriad of consumption opportunities for the buyer, like washers, dryers, refrigerators, etc… Look for this number to show an increase next Wednesday.

The Chicago PMI (purchasing manager’s index) gives a detailed look at the region's manufacturing and non manufacturing data. Even though the information is gathered locally, many feel it is representative of the economy as a whole. Economists look for a number close to 50 - this shows growth without inflation expectations. Over fifty indicates positive growth, while less than 50 reflects a slowdown. The farther away the numbers are to the middle reflects the speed at which the economy is moving, towards rapid growth or a rapid decline. The consensus for Wednesday was 54.9 but the actual number reported was 60.0.

Treasury auctions were strong this week especially in the shorter 2, 5, and 7 year notes, as investors still gravitate towards safety. Many are concerned about the Dubai crisis, or that another terror attempt like the recent one, may derail the struggling economy.Foreign countrys' willingness to take on US debt demonstrates the belief that we will be able to make our interest payment on time.

Look for strong numbers next week as some on the indicators will report two weeks data rather than one due to the market closures over the holidays.